ISDS Consultation – Jean Lambert MEP response, 4 July 2014

Question 1: Scope of the substantive investment protection provisions

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the objectives and approach taken in relation to the scope of the substantive investment protection provisions in TTIP? 

I am fundamentally opposed to the approach being taken in relation to the scope of investment protection in TTIP.  

I question the claim that previous bilateral investment treaties successfully allowed ISDS tribunals to refuse protection to those investors that have not respected the law of the host state.  

The step of empowering an arbitration tribunal with the power to adjudicate over the scope of investment protection is an unacceptable transfer of power and responsibility away from democratic control.  It is claimed that the scope of investor protection has been improved, but this has not been demonstrated and the proposal remains an affront to democratic accountability with an unacceptable shift in favour of private unaccountable interests.  In particular, the proposals empower three unaccountable for-profit arbitrators to determine how these definitions apply, with no possibility of appeal.

It is not appropriate for foreign investors to be in a better position that domestic investors, and this would be a consequence of this proposal.  Moreover, through domestic legislation EU Member States and the US already ensure investment protection for their citizens and companies, including foreign companies.  Indeed, the European Parliament recently considered the relative roles of the EU and Member States in ISDS conflicts.  The proposals also fail to emphasise and balance the obligations of investors with their rights.

Question 2: Non-discriminatory treatment for investors

Unaccountable for-profit arbitrators will interpret what constitutes discrimination.  This is wholly inappropriate. Given that existing legal systems of Member States are based on equal treatment and non-discrimination, it is also unnecessary.  Favouring foreign investors also undermines the legal certainty in public procurement and aid.

The role of ISDS for-profit arbitration panels to determine 'exceptions' in relation to public policy goals shifts power away from the sovereign rights of democratic states.  This will severely constrain or even pre-determine future political options.  

Question 3: Fair and equitable treatment

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to fair and equitable treatment of investors and their investments in relation to the TTIP? 

'Fair and equitable treatment' (FET) provisions have been the most relied-upon clauses in Investor-State Dispute Settlements.  It is well documented that such provisions have been used as a primary mechanism by which investors have sued states.  

There is no evidence that the Commission's proposals would alter this extremely likely consequence of this provision.

The for-profit arbitration panels will adjudicate over the scope of FET and this is wholly unacceptable.  These panels will interpret what constitutes FET or what indicates a breach.  The current proposal on FET will open the way for investor rights to limit governments’ right to regulate in the public interest. 

Foreign investors operating in the EU currently enjoy comparable opportunities and obligations as EU-based investors, with protections in both EU and US legal systems.  FET will equip foreign investors with additional means to undermine the policy decisions of democratically elected states.  This is evidenced by the use of such clauses to this end in other existing trade agreements.

Question 4: Expropriation

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to dealing with expropriation in relation to the TTIP? Please explain. 

Expropriation is another commonly used mechanism by which investors sue states.  This undermines democracy and will exert an influence over the formation of public policy both directly when cases are brought, but also more insidiously by the threat of action being taken.  

Foreign investors should not be given any additional rights over domestic investors in relation to either direct or indirect expropriation.  

As with some of the other proposed provisions, European and US legal systems already provide for compensation payments in the event of direct and, under certain circumstances, indirect expropriation, whereby domestic and foreign investors or citizens have been affected by unequal treatment.  

The proposed provisions are unnecessary and amount to a further and inappropriate transfer of power to arbitrators.  In particular it will give arbitrators powers to determine which measure is or is not for 'public purpose' and what constitutes 'manifestly excessive' or whether a measure serves the protection of legitimate public welfare objectives such as health, safety and the environment.  The definition of 'public purpose' and 'public interest' was a hotly debated issue within the context of the so-called 'Services Directive'.  Economic interests should not be able to over-ride public purpose.  The use of the arbitration mechanism could be taken as deepening a democratic deficit.  The consequences for public policy and environmental and social protection arising from such determinations will be huge.  This includes a real risk that significant amounts of public money would have to be used to compensate companies arising from arbitration decisions.  

Investors – foreign and domestic - already enjoy sufficient recourse to legal protection and compensation.  For these reasons arbitrators should not be given these powers and foreign investors should not be afforded these special new rights.  I oppose the proposals for expropriation.

Question 5: Ensuring the right to regulate and investment protection

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion with regard to the way the right to regulate is dealt with in the EU's approach to TTIP? 

In seeking to balance the 'right to regulate' with investment protection the proposals undermine and weaken the right to regulate, which must remain a sovereign right of state legislatures and parliaments.  I fundamentally oppose these proposed provisions because they erode and weaken democracy.

In particular, under these proposals fundamental social and human rights will be limited by economic freedoms.  This must be rejected.

The text mentions the right to regulate in the preamble but it is not binding.  The proposal will not safeguard this sovereign right.  On the contrary the proposal makes the shift in favour of economic freedom and the rights of investors, providing an institutional framework for private investors to bring lawsuits against states which will challenge the scope and extent of public regulation.

The text fails to provide clarity over which areas states will be exempt from paying compensation.

Although public welfare objectives are quoted by the Commission, they are too narrowly defined and fail, for example, to include workers' rights, social rights, human rights, education, care, financial market regulation, regional and industrial policy or tax policy.  This has also been a strong criticism of the technocratic 'Troika' approach to economic development and runs counter to the EU's own agreed strategy.

I fully oppose the limitations to the right to regulate in the way proposed.  Not only will this sovereign right fail to be safeguarded, but it will actively be undermined.

B. Investor-to-state dispute settlement (ISDS)

Question 6: Transparency in ISDS
Taking into account the above explanation and the text provided in annex as a reference, please provide your views on whether this approach contributes to the objective of the EU to increase transparency and openness in the ISDS system for TTIP. Please indicate any additional suggestions you may have. 

Improving the transparency of ISDS does not address the fundamental flaws inherent in the ISDS mechanism.  It will therefore not make the ISDS proposal acceptable, which, regardless of this provision, I continue to oppose.

The proposed improvements will not in any case lead to a sufficient level of transparency.  Under the proposals, the arbitration tribunals will be empowered to determine the need to protect confidential information.  Transparency would be better served if disputes were dealt with in existing courts and not via the proposed ISDS mechanism.  The process should be conducted in public, as would be the case in domestic courts.  The ISDS mechanism specifically aims to circumvent that.

C. OVERALL ASSESSMENT

What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US? 

Do you see other ways for the EU to improve the investment system? 

Are there any other issues related to the topics covered by the questionnaire that you would like to address?

What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US?

The Commission's reforms as proposed as part of this consultation do not address my concerns over the inclusion of Investor-State Dispute Settlements in TTIP.  The fundamental problems with ISDS remain and the only solution is for ISDS provisions to be removed from the proposals.

Foreign investors should not be given preferential treatment in comparison to domestic investors. Both should have recourse to legal systems within the countries they operate to settle any disputes. ISDS will allow this established system to be circumvented.  It therefore also undermines the juridical systems already in place.

The composition and powers of ISDS arbitration tribunals represent a shift in power towards commercial interests and an undermining of democracy, including the sovereign right of states to determine public policy.  There is a built-in undermining of the right to regulate which is not acceptable.  The threat of significant compensation cases will undermine the free hand of elected government to determine future public policy, causing a de-facto 'chilling effect' to policy options. There are numerous examples of ISDS being used as major investor challenges to states, which have sought to challenge or overturn government policy decisions.

ISDS remains unacceptable and un-reformable, and the Commission must exclude it from the negotiations.

Do you see other ways for the EU to improve the investment system?
The investment system should preclude the privatisation of jurisdiction and not include any provisions which erode the sovereign right of states to determine public policy.  To this end Investor-State Dispute Settlements should be excluded from all relevant trade agreements and negotiations.  This should apply to the EU-Canada Agreement and all other agreements being negotiated by the EU.
Are there any other issues related to the topics covered by the questionnaire that you would like to address?

Whilst this consultation seeks contributions from civil society I am concerned that it has been presented in an overly technical way, which will not have facilitated wide public participation.  In particular the fundamental question about the inclusion of ISDS is not clearly asked and can only be answered at the end of the consultation in this question.  This again acts as a barrier for wide public participation.

Regarding issues, impacts relating to the protection of workers, the environment, health and consumer protection, protection of public services and digital rights/privacy issues have not been addressed – although these are areas where potential negative impacts of the investment protection provisions could be felt and where the EU itself has a direct regulatory role.  Further assessment of these impacts is needed.  But without that a thorough public debate about what is at stake will not be possible.

There are also issues of transparency relating to the negotiations.  The impacts from such a major and wide-ranging trade agreement (especially with ISDS) for EU citizens is huge, and demands a substantial involvement of civil society representatives as part of the negotiations.  An outcome which is simply presented to EU citizens without sufficient engagement will not be received as democratically legitimate.

Regarding analysis of the responses, I would urge the Commission to state how many participants fundamentally oppose the inclusion of Investor – State Dispute Settlements or investment protection provisions in TTIP.